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December 12, 2023

For retailers, sustainability is a two-laned transformation

While retailers often closely link sustainability with business performance, according to our recent study, they can best achieve their targets by connecting these efforts with ongoing digital transformation initiatives.

When it comes to sustainability, retail executives face two inescapable yet sometimes opposing realities: On the one hand, sustainability has become a non-negotiable business priority. On the other, retailers are under constant pressure to deliver exceedingly high levels of shareholder value in a hugely challenging economic environment.

In our recent study, more than three-quarters (76%) of retailers recognized sustainability as a strategic priority, highlighting the growing relevance of this issue and the overall acceptance that retailers must act in an environmentally responsible way. We partnered with Oxford Economics on this global study of 3,000 senior executives, including 295 retail leaders. (For the full study, see “Deep Green: how data, technology and collaboration will drive the next phase of sustainability in business.”)

The plight of the modern retail executive has been to balance the two seemingly conflicted realities of driving the sustainability agenda forward and also operating a profitable business. But we would argue these issues don’t require balance, so much as better connection.

The fact is, while sustainability programs may appear to compete with other business initiatives—particularly enterprise transformation projects—it is the integration of these efforts that delivers greater business value. This is because with this approach, retailers can simultaneously reduce overall implementation costs, optimize resources and achieve a more holistic benefit across the business.

Reframing the sustainability agenda

It may seem counterintuitive, but the key to advancing and accelerating the sustainability agenda lies in reframing the dialog to encompass more than sustainability itself.

Rather than seeing sustainability as an afterthought or as a series of standalone initiatives, retailers need to put it front-and-center from the very beginning of every modernization program and incorporate it throughout the enterprise and across the entire product lifecycle.

Doing so is key to going beyond so-called “quick wins” of improving present-day sustainability metrics, to ensuring the organization builds the internal processes, capabilities and cultural elements to support longer-term, higher-value efforts. Such efforts might include enhancing the ability to track Scope 3 emissions or ensuring that a “fair trade” product lives up to its name.

Our research suggests many retailers may already be taking this approach, albeit inadvertently.

In our study, “improving business performance” was cited as the most important driver of the sustainability strategy—beating out “doing the right thing for society” and “demonstrating action to customers.”

At the same time, respondents also revealed a lack of urgency when it comes to investing in sustainability, with the biggest annual increase in sustainability spend expected only after 2025. Further, fewer than half (43%) report possessing the necessary data, analytics and reporting capabilities to advance sustainability initiatives.

These study findings underscore the disconnect between retailers’ declared goals and the investment needed to build the capabilities and implement the tools to drive meaningful progress.

3 ways to link sustainability and transformation

With that in mind, here are three key areas where retailers can naturally link sustainability with transformation efforts to better align their sustainability actions with their sustainability ambitions.

1.    Data transformation

A problem at the heart of retailers’ current sustainability shortcomings is their failure to use today’s abundant data-generating opportunities to improve their understanding of—and ability to transform—this key area. As our survey reveals, many organizations have not traditionally tracked such metrics, and many programs have not been adapted to ensure relevant data is being captured.

At the same time, in most organizations, digital transformation is still ongoing. Many retailers are still in the process of integrating various systems to establish a “single source of truth.” This gives them an opportunity to fold in the sustainability angle to ensure those metrics are captured and reflected in the master data set.

In the short term, doing so will enable businesses to automate reporting, which unlocks valuable time and cost savings. Over the longer term, having sustainability data and insights will future-proof organizations, create more business agility and allow them to factor sustainability into all levels of planning and decision-making.

Establishing a unified data foundation is absolutely crucial to unlocking the next level of sustainability gains, as well as activating more advanced use cases.

Circular product development and lifecycle management

Product development is another area ripe for transformation for retailers. The basic notion is that as companies design, create and deploy a product or service, sustainability is incorporated at the very outset of the program and at every stage thereafter.

This includes the three key principles of circularity: eliminating waste and pollution, circulating products and materials, and regenerating nature. To do this, companies need to focus on the infrastructure that's used to manage the product lifecycle.

Today, many organizations use standalone tools, such as a lifecycle assessment (LCA) system, to measure the environmental impact of a product over its entire lifespan. The next step is to create tools that facilitate better decision-making right from the product’s inception to improve circularity. This could mean developing tools to track the sources of materials or assess the net efficiency of manufacturing processes. By doing so, retailers could achieve a more complete understanding of the product’s environmental impact and, by extension, take steps to reduce waste and pollution or improve processes to extend the life of the product.

For example, in 2019, Tesco launched its “4R strategy,” which focuses on removing, reducing, reusing and recycling plastic waste within their packaging. The company identified two relatively simple design and process changes—the removal of secondary lids on cream pots as well as plastic from multi-pack items—which eliminated more than 100 million pieces of plastic.

Circularity initiatives can also focus on adapting product development to more easily reuse materials. For example, Levi’s recently announced its first-ever pair of circular 501 jeans. The brand removed pollutive elements from its materials and adapted other aspects of product design to make the recovery process easier. Levi’s also improved other sustainability metrics, such as reducing the use of natural resources and eliminating heavy metals.

The same can be true of project portfolio or lifecycle management tools. Traditionally, project managers track metrics such as completion times, costs, delays, staff hours and other factors. However, they could also measure and evaluate sustainability impacts, from carbon emissions tracking, to sustainable land use, to deforestation, to waste. This would enable them to incorporate environmental, social and governance (ESG) practices into their operations.

When expanded in this way, lifecycle management tools provide a single view of a product’s environmental and social impacts. These systems become the place where all roads cross, enabling companies to gather and track the data with which to identify areas of improvement and unlock more advanced use cases throughout the supply chain.

When viewing sustainability as part of these existing capabilities—and, by extension, part of any related modernization effort—companies can add a new dimension to an existing workflow.

In so doing, sustainability becomes more closely integrated with the business, which in turn helps keep this issue top-of-mind as projects and programs evolve.

3.    AI-enabled supply chain initiatives

To achieve sustainability objectives, retailers need to track and reduce Scope 3 emissions across the supply chain. While we cannot overstate the complexity of doing so, there is value in applying some of the same logic as above: viewing Scope 3 tracking not as a standalone initiative but incorporated as part of the broader supply chain optimization and transformation program. Ongoing tech investments in this area, particularly as they relate to traditional and generative AI, also have the potential to revolutionize how companies monitor and measure sustainability across the supply chain.

For example, AI-enabled tools can analyze vast data sets and identify patterns and opportunities for improvement, such as alternate transportation routes or suppliers and more sustainable inventory management practices. Given the complex, sprawling nature of most supply chains, these opportunities are largely out-of-reach when relying on traditional supply chain planning and monitoring practices—or when using supply chain data that does not incorporate sustainability metrics.

Similarly, leveraging generative AI for product design allows companies to rapidly assess ways to reduce waste and enhance product performance by changing one or more factors, such as using a new material or sourcing materials from a different supplier. With a nearly infinite combination of factors and complex causal relationships, it is nearly impossible for a human to identify optimal scenarios, even if they had the necessary data.

One company making major sustainability strides across the supply chain is retail giant Walmart. In 2017, the company launched Project Gigaton, a sustainability initiative that aims to reduce or avoid one billion metric tons of greenhouse gases (GHG) throughout its value chain by 2030.

The program, which has since enrolled 2,300 suppliers across 50 countries, offers a variety of resources, including calculators for partners to set and report on goals, as well as resources for adopting sustainability standards in areas like textile manufacturing or food waste. The program has made tremendous progress to date, enabling the company and its supply chain to avoid 230 million metric tons of GHG emissions in less than three years. 

While there are important efficiencies to be gained by uniting sustainability and transformation programs, there are also necessary tradeoffs. For example, when selecting packaging or shipping materials, the most sustainable option may not always be the most cost-effective. In such cases, companies need to find a balance between embracing sustainability swiftly and maintaining their margins.

It is also worth considering the possible contradictions within the sustainability strategy. For example, use of compute-intensive technology, such as generative AI and blockchain, may become a significant contributor to GHG emissions. While there is tremendous value to be gained from digitizing operations, these emissions also need to be addressed, whether through renewable energy, reducing emissions elsewhere in the business, longer use of infrastructure investments or high-quality carbon offsetting programs.

With all of that said, the bottom line is that sustainability will play a growing role in dictating how business is done in the future. Once seen as an opt-in initiative, sustainability is fast becoming a mandate—and often one dictated by partner requirements, as well as government regulations.

Leading the way to a deep green future

There is reason for optimism when it comes to sustainability. We see retailers being proactive, making sizable technology investments to enable more advanced tracking and reporting, and incorporating new standards with suppliers.

Retailers in particular realize the existential risk associated with sustainability, both from an environmental and regulatory point of view. To survive, retailers need to fully embrace sustainability values, as well as investments that will increase the resiliency and agility required to navigate in an increasingly volatile environment.

Where retail leads, others follow. As such, the success of individual retailers not only creates value for their company but also influences the industry, and sets the tone and direction for other sectors and society at large.

Learn how your business (or you) can become sustainable to the core in our report, “Deep Green: How data, technology and collaboration will drive the next phase of sustainability in business.”

For even more on this topic, visit our Sustainability & Resilience webpage.

Dana Vannen Anderson

Sr Director, NA Retail & Consumer Goods Sustainability

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Dana leads advisory services for sustainability, smart products, smart manufacturing, PLM and mobility. With 25+ years of experience, she is driven to bring out the best in diverse teams to make a difference in the world.

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